Abstract

The increasing digitalization of the economy and advances in data processing have drawn economists’ attention to the role of personal data in markets. The economics of privacy aims to analyze how individuals, firms, and policymakers interact in markets where personal data play a key role. The complexity of these markets is challenging for academics who rely on different disciplines and methods to investigate privacy issues, including field experiments. In this article we review this literature, and point out the need to take account of the complex interactions between the different economic agents, and highlight specific strategies regarding privacy issues. First, individuals might face a puzzling tradeoff between sharing data in order to access customized services and, on the other hand, protecting their personal data against potential data misuses. Second, industrial organizations and the literature of marketing study how firms can fit personal data into their strategies; and how this can spur new business models. Third, privacy regulation is being challenged as it aims both at protecting individuals’ privacy while preserving firms’ capacity to innovate. In this context, the main difficulty for policymakers is to shape a clear framework for both individuals and firms. Lastly, we bring attention to the need for further research to investigate the role of privacy as a business differentiator: in other words to establish a clear link between consumers’ demand and firms’ offer.

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Bibliography

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